It's love at first sight for Fonzie when he sees a woman in a store as they pass each other on the escalator. Potsie happens to know who she is (Ashley Pfister), and Fonzie vows to find her and make her his.

In an attempt to get Ashley's young daughter, Heather, to warm up to him, Fonzie takes her to the circus. Meanwhile, K. C., Howard's niece, moves in with Howard and Marion while her parents look for a new boarding school. Marion asks Howard to consider letting her stay permanently.

Fonzie receives a good citizenship award from the Milwaukee Chamber of Commerce, but the ceremony is interrupted by a disgruntled childhood classmate of the Fonz who's been waiting 17 years for his revenge. They agree to settle their differences, but Ashley asks Fonzie to promise not to fight.

Fonzie pledges his love to Ashley but risks losing her when he allows an old girlfriend to spend the night at his apartment. Meanwhile, Howard teaches K. C. to drive.

When Heather asks Santa to patch up the rift between her mother and grandparents, Fonzie decides to make her wish come true. Meanwhile, K. C.'s parents visit for Christmas, and a rivalry between Howard and his brother reignites.

Roger's old flame from his school days shows up, and Roger cannot resist her. Fonzie attempts to prevent her from breaking his heart again.

Ashley receives an invitation to her estranged parents' wedding anniversary party. She doesn't want to go, but Fonzie insists.

Roger tries to convince Flip to stop drinking and hanging out with guys that do. Flip doesn't take his advice, and he and his friends accidentally hit Heather with their car.

Meanwhile, Fonzie auditions barbers to replace his who recently died. Also, Jenny, K. C., Bobby, and Melvin are in charge of decorations for the Winter Carnival.

During a celebration of Fonzie and Ashley's six-month anniversary of their first date, they recall the events of that evening.

It's Heather's birthday, but Fonzie (along with Potsie and Roger) has to report for the Army reserves. He promises Heather that he will be at her party, but he didn't count on Officer Kirk being the commanding officer.

Fonzie babysits Heather when Ashley leaves for a tax seminar, but his attention is drawn away by a televised heavyweight title fight leaving Heather resentful toward him. Meanwhile, Joanie and Chachi return to Milwaukee after Joanie says she's sick.

After deciding to quit the band, Joanie moves back in with Howard and Marion to enroll in a teaching program at the University of Wisconsin. Chachi tries to convince her to stay with him in Chicago after he isn't willing to go with her back to Milwaukee.